Did you know that a tax deduction does not equal a tax refund or a tax reduction? This is because the deduction comes off the income and then the person or entity's marginal tax rate is applied to the remaining income.
Here is our simple case study to explain this:
Becky realises that she is expecting to make a profit of $125,000 in her investment company for the financial year ending 30 June 2021 (FY21) and is considering making a $25,000 contribution to super to use her concessional contributions cap (CCC). So, Becky calls her accountant Ben and asks him what the tax saving would be on this and receives this response:
In other words, a tax deduction decreases your taxable income not your tax payable.
Note: entity and individual tax rates are topics for another discussion, however, the same basic principles apply, a tax deduction does not equal a tax saving.
Disclaimer: This information is general in nature. So, before acting on this or any other information, it is important to seek professional advice related directly to you and your circumstances. Should you require our assistance, contact your Primarius Team leader, or email us at email@example.com